City of Austin one of many sucked into biomass plant money pit

For almost six years, Austin Energy customers have been paying about $54 million a year for a power plant in East Texas not to produce biomass energy.

Those customers also paid $128 million to build the plant.

Nearly two years ago, the city of Austin hired a staff of attorneys to see if Austin Energy could get out from under a 20-year contract that even supporters of the wood-burning power plant came to see as a terrible deal for utility customers.

When asked late last week by The Texas Monitor what, if anything, those lawyers had done during that time, Jason Stanford, a spokesman for Mayor Steve Adler said, “The lawyers aren’t discussing this publicly. That’s all I know.”

The city is also not disclosing how much taxpayers have been paying in attorney’s fees. At the time Adler confirmed for a Texas Watchdog reporter that the lawyers had been hired, he said those fees could reach $100,000.

The Texas Monitor on Friday made a formal request through the Texas Public Information Act for all documents and a list of costs pertaining to the investigation into the contract between Austin Energy and Southern Power for the Nacogdoches Generating Facility near Sacul, in East Texas.

The Texas Monitor also contacted Jennifer Herber, a spokeswoman for Austin Energy, Friday to ask about the lawyers and the contract. Herber said she would check on it, but did not return a call before this story was published.

A phone message left with officials for the Nacogdoches plant on Friday was not returned.

By contract, Austin city and energy officials have deflected customers’ requests for details of the costs, or even to understand why they are being charged about $2 a month extra on their energy bills for energy that’s too expensive to buy or produce. From the beginning, the project has been cloaked in secrecy.

In 2008, Roger Duncan, then the general manager for Austin Energy, had developed plans to aggressively increase the utility’s reliance on alternative energy sources. Duncan told this reporter two years ago that while solar and wind power generation costs were coming down, Austin needed an alternative energy source available when the sun doesn’t shine and the wind doesn’t blow.

A rare coalition of environmental activists and corporate interests, consumer and good government advocates, came forward to complain that Duncan had moved too fast and without enough public input.

At least three experts who were part of the coalition warned that wood-burning or biomass generation very likely would become uncompetitive because hydraulic fracturing was at the time on the verge of revolutionizing the oil and natural gas business.

Duncan and the City Council were not persuaded. The council unanimously approved allowing Austin Energy to pass along to its ratepayers the $128 million cost of building what was, at the time it was ready to go online in 2012, the largest biomass plant in the United States.

The council also unanimously approved allowing Austin Energy to enter into a 20-year guaranteed contract to buy energy from the plant. Southern Power, a subsidiary of the Southern Company in Atlanta, bought the plant and took over the contract shortly after it fired up for its test run in 2012.

But in its first seven months, the plant generated electricity for only two of them. Still, the plant remained fully staffed around the clock as stated in the contract, Tim Leljedal, a spokesman for Austin Energy at the time, said.

Trey Salinas, with Coalition for Clean Affordable Renewable Energy, said at the time the City Council was well aware of the risk it was taking. “They can’t say they couldn’t know,” Salinas said, “because they were told.”

With the steep decrease in natural gas prices, biomass energy deals like Austin’s have become albatrosses for government officials in many cities across the country.

More than half of the 50 biomass power plants in California are not operating and more are expected to be idled as utilities decline to renew their contracts.

Last year the Minnesota legislature passed a bill that allowed Xcel Energy to tap clean energy development funds to pay off contracts and shut down three biomass plants. An Xcel spokesman estimated utility ratepayers would save almost $700 million over the next 11 years by paying the biomass plant operators off.

The City Council in Gainesville, Florida solved its biomass plant problem this past November by buying the Gainesville Renewable Energy Center, valued at $450 million, for $754 million and another $400 million in interest over the 30 years it will take to pay it off.

The purchase was one of the most expensive in city history.

Unlike Austin, Gainesville’s elected officials had tied utility customers to a guaranteed contract for 30 years at a cost of about $70 million a year. Gainesville paid for its $120 million biomass plant with a grant from the U.S. Treasury Department.

City officials there estimate savings of $768 million over what would have been the remaining term of the contract. “Many of the predictions that made GREC (Gainesville Renewable Energy Center) look advantageous in the short run just never materialized,” Mayor Lauren Poe said.

In its study released in April, Georgia Tech’s Ivan Allen College School of Public Policy characterized what had happened with biomass in Virginia. The conclusions in the study are true for Austin, Gainesville and everywhere else.

“The economics were not competitive in 2012 and they would be even more unattractive in today’s marketplace with cheap natural gas, rapidly declining solar costs, and an abundance of affordable energy efficiency,” the study says. “Overall, our analysis underscores the risks associated with investing in large, long-lived generation assets at a time when technologies and markets are rapidly evolving.”

“A review of publicly available information led us to conclude that Dominion’s planning process did not fully evaluate a broad range of alternatives to coal plant conversions to biomass.”

Adler turned to attorneys after saying prior to taking office in January of 2015 he thought the city had cut a bad deal for biomass. When asked in June of 2016, Stanford said, “We’re still pursuing this with lawyers and when you hire lawyers you can expect things to take time. The mayor has said he has been wanting to find options.”

After nearly two years, the mayor, city and utility officials have not disclosed if any options exist and what more they might cost utility customers.

Mark Lisheron has more than 30 years of experience in newspapers and was most recently the managing editor for Reason.com. He also served as deputy editor, national reporter and Austin bureau chief for Watchdog.org. He was the founding Austin bureau chief for the bureau's predecessor, Texas Watchdog, winning the First Amendment Award from the Society of Professional Journalists in Texas.

76 COMMENTS

… and Austin City Council judges the business practices of other businesses in Austin, mmmmmm. Just imagine what they could have done for the people of Austin needing assistance with that money. Then on top of that, continually increasing taxes to max every year, driving people out of their homes. Where does all the money go?

I live in Gainesville Fl. and our officials were warned, pleaded with and begged not to sign us up for this boondoggle. We tripled down on stupid! The smartest, greenest and progressive kids in the room extended the contract from 20 to 30 years, contracted to buy 100% of the power instead of 50% and removed the termination for convenience clause. Lauren Poe our current Mayor (Referenced in the article) voted for the initial contract, lost his re-election bid came back 3 years later and voted to give another $120+ to GREC “Our Partner” and then was elected Mayor and oversaw the purchase of the 104 megawatt plant for $1.1 billion that we will be playing the bonds off over the next 30 years! The poor bear the brunt of the increased energy costs along with the business community that labors under ever higher commercial rates than our residential rates that are frequently the highest in the state. Our city owned utility is on life support, shedding underpaid workers to other utilities and there has been talk of selling the utility that contributes 30% of the City budget thru a general fund transfer. Our City could easily be bankrupt under the increased debts and delayed infrastructure spending that the Progressive’s have layered on our fine citizens. All for “green cred!” Former Mayor and Biomass Queen Pegeen Hanrahan has made quite a consulting business of the bones of our formerly fair city!

The road to hell is paved with good intentions…..that’s the problem with so many of these liberal, feel good , save the planet ideas. What ever happened to using tax payer money prudently on established, proven technology instead of gambling our money on these ideological boondoggless.

Anyone familiar with Austin spending history remember the South Texas Nuclear Project and the monies THAT cost Austin? What Austin needs are Council members that know what they’re doing and want to save money not just SPEND IT.

The irony in all of this is they could have built a natural gas fired power plant for a fraction of the price. The politicians who export out natural resources while spending a 128 million on a power plant that produces nothing should in my opinion be ran out of not only in Austin but Texas on a rail.